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On Friday evening in Beijing, just before opening negotiations in New York, Didi Chuxing received an alarming call from a little-known Chinese regulator.
The Cyberspace Administration of China, the Internet surveillance dog, warned the country’s response to the Uber group, which in an hour should get it. he publicly ordered that it be stopped register users, according to a person familiar with the matter.
Shares of Didi, who had three days before organized its initial $ 4.4 billion public offering – The largest in the United States this year, fell 5% when investors digested the shock announcement.
After also ordering Didi and two other Chinese companies that had been listed in the U.S. in recent weeks to be withdrawn from Chinese app stores, the watchdog on Monday announced an investigation on whether the companies had infringed the laws on the collection and use of personal data.
Events have called into question a multimillion-dollar pipeline of planned New York listed by Chinese companies, as Beijing begins to implement comprehensive legislation to ensure large amounts of data considered vital to its national security.
Chinese IPO advisers in the United States and investors noted China’s decision to wait until Didi made his investigation public and asked if the company could have foreseen the crackdown. “It seems targeted,” said a fund manager in Hong Kong. “People are wondering if Beijing is angry with big technology for going abroad.”
According to a person close to Didi, two Chinese regulators had recommended in the weeks before the publication that the company delayed the IPO until it had conducted a review of the security of its data.
The CAC and the China Securities Regulatory Commission held separate discussions with the company on whether it should consider Hong Kong as alternative list site in New York. As part of China, Beijing considers Hong Kong safer than the US.
But Chinese regulators did not have the legal authority to prevent the company from trading abroad.
The person said the widespread data security investigation announced Friday, just two days after Didi’s listing, as well as the ban on the app store, was a “punishment” for ignoring regulatory warnings.
Didi did not immediately respond to the request for comment on the guidelines for delaying the listing and review of data security.
On Monday, state-owned tabloid Global Times claimed that Didi posed a security risk to Chinese citizens ’data, mostly because it was partially owned by Japan’s SoftBank and Uber.
“For companies like Didi. . . China should monitor information security more closely to protect both the security of personal data and national security, “the newspaper said in an editorial.
In China, financial commentators took advantage of the pace of Didi’s roadshow, arguing that the company had misjudged its potential exposure to last-minute regulatory complications.
According to several people involved, Didi carried out a shortened IPO process. The show for investors lasted only three days, while book construction was “rushed,” according to one investor.
An executive at one of the Wall Street banks that sponsored the IPO said the timetable was short due to high demand and added that Didi could not have anticipated the regulatory developments. The company and its banks had guarantees from Chinese lawyers that it “fully complied,” he said.
Didi said, “Prior to the IPO, Didi was unaware of the CAC’s decision.”
“It looks like the CAC is under pressure to take action against Didi right now,” said Xiaomeng Lu, director of geotechnology at political consultancy Eurasia Group.
The CAC invoked a cybersecurity review process that was introduced just over a year ago and had never been used publicly. Under the procedures, companies should volunteer for a review of their supply and supply chains if their operations are of critical importance to national infrastructure. It is unclear whether Didi requested a review before it went public.
Lu said the CAC could have expected a new data security law to come into force in September, which would have been a more appropriate tool to address its concerns about Didi.
The company close to Didi did not share sensitive data with US regulators. But the US has long wanted to access it Audits of Chinese companies, with Beijing’s denial on the grounds that the documents were sensitive.
In December, the US government passed a law this gives Chinese companies that do not meet their audit requirements a grace period of three years before they are withdrawn.
Some in the market questioned the the moment of repression. “Whatever the reason for China’s national security actions, the U.S. perception is that Beijing cynically synchronized its regulatory coup so that it would fall after Didi absorbed money from U.S. investors,” they wrote on Monday. analysts from the Gavekal Dragonomics research group.
The investment banks they have incorporated record rates in the U.S. U.S. lists they are concerned that regulatory pressure could stifle new IPOs. “It’s now an unmeasurable, unpredictable risk factor that can’t be navigated,” said a Wall Street bank executive.
Still, some said the rewards still justified the risk for many companies. “Chinese names will continue to go public in the U.S. if they can,” the head of a U.S. bank’s capital markets said. “What they fear is that they will be forced to go public in Shanghai and then not be able to withdraw money from China.”
Reports of Hudson Lockett and Tabby Kinder in Hong Kong and Sun Yu, Christian Shepherd and Yuan Yang in Beijing
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